Gov. Jerry Brown releases details of his revised budget plan for the coming fiscal year Monday, May 14, 2012, in Los Angeles, just days after saying California faces a $16 billion deficit, almost double what he had predicted in January. Closing that shortfall would require cutting spending by an amount equal to roughly 17 percent of the state's general fund, but the Democratic governor is seeking a combination of cuts and tax hikes instead. (AP Photo/Nick Ut) less

Gov. Jerry Brown releases details of his revised budget plan for the coming fiscal year Monday, May 14, 2012, in Los Angeles, just days after saying California faces a $16 billion deficit, almost double what he ... more

Photo: Nick Ut, Associated Press

JPMorgan losses look familiar to Phil Angelides

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What strikes Phil Angelidesthe most about the $2 billion (and counting) loss sustained by JPMorgan Chase on a big trade gone bad, is how little has changed since the financial crash of 2008.

"The big banks continue to be casinos," said the chairman of the government-appointed Financial Crisis Inquiry Commission, which laid out how such trades, referred to in some quarters as "bets," contributed to the crash that the country is still struggling to pull itself out of. "It has to be stopped," he said.

Trouble is - as Angelides, the former California state treasurer, and others point out - no one is stopping them.

Jamie Dimon, JPMorgan's CEO, dismissed initial concerns about the trades last month as a "complete tempest in a teapot." That is, until bank regulators and a scheduled corporate filing forced his hand last week. Even then his main concern, he told analysts, was how the affair "plays right into the hands of a bunch of pundits out there."

Dimon was referring to those who have been pushing for regulations to prevent federally insured banks like JPMorgan from indulging in such trades in the first place. "They've been fighting a ferocious rear-guard, no-holds-barred action," said Angelides, referring to the army of lobbyists hired and millions of dollars spent to beat back the regulations. "Hopefully, this will give some backbone to regulators."

The Securities and Exchange Commission is investigating the trades, which involved the use of complex financial instruments called credit default swaps as a hedge against the value of U.S. bonds. On Monday, heads started to roll at JPMorgan, and Sen. Bob Corker, R-Tenn., a member of the Senate Banking Committee, has called for expedited hearings on the matter, saying "policies are going to be derived out of what's happened."

Such policies will likely focus on the Volcker Rule in the Dodd-Frank financial reform law. The provision as drafted would allow for "portfolio hedging," which JPMorgan claims it was engaged in. Others, though, say the bank's trades more closely resemble proprietary trading, which the Volcker Rule would forbid.

"The current rule is too weak. Maybe now it will be made stronger," said Angelides.

But there are other questions, especially for Dimon, who was paid $23 million in 2011. That the trades were poorly managed by others - "stupid," "sloppy," "egregious," as Dimon claimed - is all well and good. But as CEO, what did he know, and when did he know it?

"I'd try to get a sense of how endemic these kinds of trades are at JPMorgan, and at other banks for that matter. This is not a one-off," said Angelides, pointing to multibillion-dollar bets gone bad at MFGlobal and UBS in the past year.

"Derivatives are a $600 trillion market, but four years after the crisis, they're still a dark unregulated market. That these instruments are still traded in the shadows is amazing."

Capital flight: It's taken awhile, but the Bay Area's Virgin America airline finally got the go ahead to fly direct from SFO to Ronald Reagan Washington National Airport. That's good news for those looking to fly to the nation's capital without having to go through Dulles International, 30 miles away from downtown D.C.

"Until this year, San Francisco has been the largest travel market in the nation previously without nonstop flights to (Washington National)," said Virgin CEO David Cush.

The Burlingame airline said the once-daily flights will begin "later this summer," but probably not before its other new route, to Portland, Ore., starts next month.

"I don't know why you're giving me this award," he told attendees, "except for the fact that if anyone can fix this state, I can." (Laughter).

Part of fixing the state is getting a stronger business climate, "so we have to have something to invest in," he said, before returning to his topic of choice - California's financial issues and what he's doing to tackle them.

"We are cleaning it up," he assured the audience. "Don't worry, you can go home tonight and you can sleep well. It's all going to be fixed up." (More laughter, appreciative applause).

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